VALUATION HIGHLIGHTS

1. Client Computing Group constitutes 54% of the Trefis price estimate for Intel's stock.
2. Data Center Group constitutes 28% of the Trefis price estimate for Intel's stock.
3. Internet of Things Group constitutes 11% of the Trefis price estimate for Intel's stock.

WHAT HAS CHANGED?

Q4 FY 2023 Earnings

Intel posted a better-than-expected set of Q4 2023 results. Revenue grew 10% to $15.4 billion, while adjusted earnings stood at $0.54 per share. The company projects revenue of $12.2 billion to $13.2 billion for Q1 2024.

Intel's data center business

Intel's Data Center and AI business is seeing headwinds as demand from the cloud computing and enterprise space has weakened a bit. Intel has also been losing share to rival AMD, whose Genoa server chips offer a better price-to-performance tradeoff versus Intel's current server processors. Over Q1 2023, the segment's revenues declined 39% versus last year to $3.7 billion. Although the market headwinds could persist in the near term, Intel could benefit from the launch of its new data-center-focused chips. The company indicated that the new Sierra Forest chip would start shipping in the first half of this year with the Granite Rapids chip slated to debut shortly after.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Intel's value that present opportunities for upside or downside to the current Trefis price estimate for Intel:

• Intel has seen strong growth in its Data Center Group over the last few years. The revenues stood at $19 billion in 2022, and we forecast them to grow to over $23 billion by the end of our review period. However, Intel is facing mounting competition in the data center space, with rival AMD also gaining ground. If Intel's data center revenues remain flat at current levels of about $19 billion, then we could see a downside of about 10% from our current price estimate.
  

• The Data Center Group EBITDA margins have declined from over 49% in 2018 to around 36% in 2022. While we forecast that margins will recover to about 43% by 2029, driven by new launches such as the Sierra Forest chip and Granite Rapids chip there could be a downside of about 10% if margins remain flat at current levels.

For additional details, select a driver above or select a division from the interactive Trefis split for Intel at the top of the page.

BUSINESS SUMMARY

Intel is best known for manufacturing and selling microprocessors used in servers, desktops, and notebooks. Microprocessors are a PC's central processing unit (CPU) or the brain behind the computer. A microprocessor is the single most important component that drives a computer's power and performance.

SOURCES OF VALUE

Microprocessors and chipsets used in servers, desktops, and notebooks are the major sources of revenue for the company.

KEY TRENDS

Market Share Loss To AMD

AMD's Ryzen processors are in high demand of late. Ryzen CPUs have been able to deliver competitive power at a relatively lower cost. As such, AMD has gained some market share from Intel over the past few quarters. AMD is currently working on 7nm chips, which will roll out around the same time as Intel's 10 nm chips. AMD could gain further share in the coming quarters over Intel with its new chips, which it plans to launch for all major products - Ryzen, Radeon, and EPYC processors.

Beyond Ryzen, AMD's growth in the server market is more worrying for Intel. AMD's EPYC processors have been gaining a share amid strong performance at a lower price point.

On-Going Server Virtualization

Server virtualization is essentially server consolidation that enables running multiple applications on a single server instead of on multiple servers. Server virtualization is driving a mix shift to higher-end servers, which requires multi-core processor servers that tend to be more complex and more expensive than traditional single-core processors.

Increasing Importance of Smartphone and Tablet Chips

While PC shipments have declined drastically in the last few years, mobile shipments (particularly smartphones and tablets) have grown at a robust rate. Though the growth rate has slowed as developed markets near saturation, mobile shipments continue to expand at a fast pace.

Convergence of Graphics & Processing

Both Intel and AMD have moved away from the idea of integrated graphics. These chips pack GPU within the CPU leading to much better graphics performance than one can get from traditional integrated graphics.

PC Market Opening up to ARM (Advanced RISC Machine)

New Windows versions are ARM-compatible which has opened up the market to ARM-based processor manufacturers. This market was traditionally been dominated by x86 processor architecture. This will challenge the dominance of Intel which could lose some market share in the future, on account of increasing competition.